1

At the end of the year, it might make sense to sell some stocks which currently are in the red to compensate gains made by other stocks for tax reasons.

Usually, people only hold stocks if they are confident, that they have the potential to rise in the future, so although some specific stock is in the red at the end of December, at least in some cases they do not want to sell them completely. Thus, they might re-buy the stocks they've sold for tax reasons (and it still is beneficial to them, since order costs are negligible).

Of course, in many cases, one won't be able to re-buy the stocks for the same price as he sold them but sometimes one might buy the stock for exactly the same price as he sold it just a couple of seconds/minutes ago. So far so good. Recently, I've heard that buying and selling stocks at the same price within a short timespan is considered to be market manipulation. Since at least for a private person trading with ~1000-10 000 €/$, I can't imagine how this would manipulate the market (and why it should be forbidden). Thus, I decided that this story must be a fairy-tale.

A couple of weeks ago, a law-professor told us about a client who indeed had some problems with the financial regulator because of buying and selling for the same price. For clarification, I have to admit that he had a buy and a sell order for exactly the same amount of stocks for the same price at the same time.

So, since this seems to me to be a valid source it might be more than a fairy-tale.

1) Can anyone explain to me why this might be considered as market manipulation (according to Wikipedia definition I don't see how this might manipulate the market. If at all it might be close to a "wash-trade" but I still don't see how one can take advantage with just a few thousand €/$), especially because buying and selling at the same price doesn't change the price itself but since orders aren't for free one effectively even loses money?

2) Is it crucial that both orders are active/executed at the same time or is it still manipulation if that happens within a couple of seconds/ one minute?

3) I never tried to get exactly the same price, but if it is forbidden, why is possible to place the corresponding orders without any warning?

4) If that indeed is a "crime", is it a crime everywhere or is this a local juristic peculiarity (Europe)?

Since I don't search for legal advice or the like but I am interested in learning something about this question I don't want to restrict answers to Europe (if the last question turns out to be true).

  • 1
    I'd think this would only matter with a big sale on a low-volume stock, where the dramatically increased volume might be picked up by algorithms as a signal. – ceejayoz Jan 16 at 18:25
  • I think you are missing the point. This is a wash sale, so generally won't count for tax purposes. That is, most jurisdictions will consider your actions as though the sale didn't occur. – ChrisInEdmonton Jan 16 at 18:37
  • @ChrisInEdmonton - Applicable to the US, it's a wash sale only if it's a realized loss with a -30/+30 replacement share violation. And if trading at the current B/A, it's a small loss which is likely to be inconsequential for someone looking to churn the market to generate exaggerated volume and entice traders to buy. It "won't count for tax purposes" only if it's and end of year carryover violation. All wash sales completely closed in the current tax year do count. – Bob Baerker Jan 16 at 18:42
  • @BobBaerker 'seconds or minutes afterwards', as the OP stated, is obviosuly within 30 days. His whole plan to make losses tax-relevant will not work, the sell and rebuy is a wash sale. – Aganju Jan 17 at 0:53
  • @Aganju 37 - You need to distinguish between a wash sale and a wash sale carryover loss. The holding period determines whether tax losses are relevant or not. As stated above, all wash sales completely closed in the current tax year do count. – Bob Baerker Jan 17 at 1:35

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.